ARE BANKERS RESPONSIBLE FOR THIS ONE TOO ?
British banking giant Barclays' chairman Marcus Agius quit on Monday, saying an interest rate rigging scandal had dealt "a devastating blow" to the bank’s reputation and "the buck stops with me". Pressure has built on him and CEO Bob Diamond to quit following a $453m fine for Barclays by British and US regulators last week for making inaccurate submissions on the Libor interest rate. Both Mr Diamond and Mr Agius have been called to appear this week before British legislators on the Treasury select committee in the wake of the fine. The news that Barclays traders tried to fix Libor rates rocked the financial world last week. It also wiped billions off Barclays’ market value in a week when British banks were separately sanctioned for mis-selling interest rate insurance. The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating
FAR REACHING IMPACT
The inquiry will focus on possible criminal sanctions against people who breach future regulations on the rate. Banks may face billions of dollars in costs from litigation. More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans as per Wall Street Journal. Derivatives market is approximately $1,200 trillion dollars. Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.
IS THE METHODOLOGY FLAWED ?
Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.
British banking giant Barclays' chairman Marcus Agius quit on Monday, saying an interest rate rigging scandal had dealt "a devastating blow" to the bank’s reputation and "the buck stops with me". Pressure has built on him and CEO Bob Diamond to quit following a $453m fine for Barclays by British and US regulators last week for making inaccurate submissions on the Libor interest rate. Both Mr Diamond and Mr Agius have been called to appear this week before British legislators on the Treasury select committee in the wake of the fine. The news that Barclays traders tried to fix Libor rates rocked the financial world last week. It also wiped billions off Barclays’ market value in a week when British banks were separately sanctioned for mis-selling interest rate insurance. The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating
FAR REACHING IMPACT
The inquiry will focus on possible criminal sanctions against people who breach future regulations on the rate. Banks may face billions of dollars in costs from litigation. More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans as per Wall Street Journal. Derivatives market is approximately $1,200 trillion dollars. Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.
IS THE METHODOLOGY FLAWED ?
Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.
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